Master thesis for the Master of Philosophy in Economics degree Demand for Norwegian Premiership Football The Impact of Public Broadcasting of Games Martin Sjuls May 2008 Department of Economics University of Oslo i Preface “Football is a game for 22 people that run around, play the ball, and one referee who makes a slew of mistakes, and in the end Germany always wins” – Gary Lineker There are numerous approaches to the world’s most popular sport. My approach has been an instructive process. It has challenged me in using economic theory on a field I earlier only had a passionate relationship to. The final result would not have been possible without constructive and encouraging comments from my supervisor post doc. Jon H. Fiva at the Department of Economics. Thank you! Chris Worsfold deserves thanks for proofreading the thesis and giving useful comments. The discussions about the sport we love have improved this thesis. I would never have been able to accomplish a master degree without my good friends and fellow students at the University of Oslo. They have made my life as student an unforgettable time, and I will miss the totally off topic discussions we had in the fourth floor. Last, but not least I am grateful to mom and dad who have always supported me and provided me with extraordinary housing facilities during my life as student in Oslo. All potential errors or misunderstandings are in the responsibility of me and only me. Blindern. May 2008 Martin ii Contents 1. Introduction .................................................................................................................... 1 2. Background..................................................................................................................... 4 2.1 Tippeligaen............................................................................................................... 4 2.2 The Economics of Sport and the Media ................................................................... 5 2.2.1 The Relationship Sport and Media................................................................... 5 2.2.2 Individual versus Collective Sale of Rights ..................................................... 7 2.2.3 Free-to-Air or Pay-TV?.................................................................................... 8 2.2.4 The Historical TV-Agreement.......................................................................... 9 3. Theory............................................................................................................................ 12 3.1 Two Types of Demand........................................................................................... 12 3.2 General Theory....................................................................................................... 12 3.2.1 Consumer Theory........................................................................................... 12 3.2.2 Normal versus Inferior Good ......................................................................... 14 3.3 Determinants of Attendance................................................................................... 15 3.3.1 Preferences ..................................................................................................... 16 3.3.2 Economic Variables ....................................................................................... 17 3.3.3 Quality of Viewing......................................................................................... 18 3.3.4 Uncertainty of Outcome ................................................................................. 19 3.3.5 Capacity Constraints....................................................................................... 23 3.3.6 The Impact of Broadcasting ........................................................................... 23 4. Construction of the Data Set ....................................................................................... 25 4.1 Football Statistics ................................................................................................... 25 4.2 Uncertainty of Outcome ......................................................................................... 25 4.3 Population and Distance Statistics ......................................................................... 26 4.4 Weather Statistics................................................................................................... 27 4.5 Capacity Constraints............................................................................................... 28 5. The Econometric Framework ..................................................................................... 29 5.1 The Ordinary Least Square Estimator.................................................................... 29 5.2 Model Specification ............................................................................................... 30 5.3 Descriptive Statistics .............................................................................................. 33 iii 6. Results............................................................................................................................ 36 6.1 Discussion .............................................................................................................. 39 7. Conclusion..................................................................................................................... 41 References/Literature .......................................................................................................... 43 Appendix A: Abbreviations................................................................................................. 45 Appendix B: Weather Statistics .......................................................................................... 46 Appendix C: More Descriptive Statistics ........................................................................... 47 Appendix D: Interpretation of Dummy Variables ............................................................ 50 1 1. Introduction ”Understanding about the nature and determinants of demand is arguably the most important empirical issue in analysis of professional sporting markets. Team owners and managers, sporting league administrators, and public policy-makers or regulators simply cannot make correct judgements on issues of vital importance to them, without having some knowledge about demand.” (Borland and MacDonald, 2003) Norwegian premiership football has apparently never experienced more popularity like the popularity we have seen the last couple of years. Never has so much money been involved in the sport and the clubs can be considered as medium sized firms with some having budgets higher than 100 million NOK. The income from ticket sale is an important revenue source, implying that knowledge about the demand for the sport is of vital importance. Even though “demand for sport” studies have been common practice in sporting leagues abroad, there are few contributions on this field in Norway. Johnsen and Solvoll (2007) analyse however in their article the demand for televised football. They examine the TV-ratings and how they are influenced by factors specific to television on the one hand and factors specific to football on the other hand. This thesis seeks to answer how the demand for Norwegian premiership football is affected by live televising of games on a public broadcaster. The televising of games in Norway is unique in respect to the number of games which are broadcasted live. The result of a 1 billion NOK media contract effective from the 2006 season was that all games in the premiership were broadcasted live either on public television or on subscription TV. Watching football for free can be viewed as a substitute to attend the match at the arena, and one should therefore expect that public broadcasting reduces attendance on those matches. In my analysis I make use of detailed match specific data from the 2006 and 2007 season to control for potentially other determinants of the attendance. These data capture economic variables, uncertainty variables, quality of viewing variables etc. The method used is a fixed effect regression analysis, implying that both observable and unobservable fixed characteristics of the home teams the respective seasons are accounted for. The analysis has been carried out in the program package PcGive10. 2 Carrying out an analysis on demand for sport, four key methodological challenges must be addressed. First, like in all empirical work one needs to obtain good data. As there is no complete data set for my purpose, I have used data from different sources in the creation of a suitable data set. Second, there are challenges related to the quality of measurement of variables. This is especially the case on uncertainty variables, which is heavily discussed among sport economists. Third, there are potential problems of omitted variable bias. As there are many observable and unobservable determinants of demand, and the relationships are complex, caution must be expressed when analysing the results. To avoid that unobservable determinants of demand create spurious relationship between live broadcasting and attendance, this analysis include a battery of fixed effects. Fourth, capacity constraints make it difficult to measure demand. This is however not of great concern in this study as the proportion of sold out stadium is relatively small. I find no evidences that public broadcasting of games reduces attendance significantly.